E-commerce, competition policy, and development

1
E-commerce, competition policy, and development

• Andrea Goldstein
• OECD Development Centre
• Workshop on Electronic Commerce Business Impacts
  Project (EBIP), Rome, 29-30 October 2001

2
Internet, the Great Equalizer?

• makes the whole economic system, nationally and
  internationally, more competitive
• prices of well-specified goods and services
  available on-line
• buyers can shop for the best deal over a wide
  geographic area
• sellers can reach a larger group of buyers
• textbook model of perfect competition
• large numbers of buyers and sellers
• market with perfect information
• lower profit margins
• more efficient production
• greater consumer satisfaction

3
Commissioner Montis Opinion

• The Internet is a wonderful enabling technology,
  which will in principle increase competition in
  many markets. Nevertheless, that does not mean
  that it is immune from competition problems. Can
  competition law that was designed to deal with
  bricks and mortars deal with clicks and portals?

4
General competition concerns

• "gate-keeper" effects and vertical integration
  (between portals and sites/products, or ISPs and
  multimedia companies) --gt ensure that control
  over telecom networks does not lead to
  distortions of competition
• removal of geographical barriers to competition
  --gt avoid speculative, discriminatory and abusive
  registration or management of Internet domain
  names

5
Does e-commerce create new markets for the
purposes of competition policy?

• The answer will differ from market to market
• will partly depend on
• whether and how firms in traditional channels
  become involved in B2C and B2B "e-marketplaces"
• on-line deliverability of a product
• In OECD countries it is more likely to be a new
  sales channel
• in non-OECD countries, where traditional sales
  channels are less well-developed, e-commerce
  creates new markets (eg, car parts in India)

6
May product markets be made narrower as a result
of increased scope for price discrimination?

• e-commerce makes it easier to
• quote different prices to different buyers
• use information about consumer buying habits to
  identify those willing to pay higher prices
• take advantage of the fact that higher income
  consumers, i.e. those with a greater ability to
  pay higher prices, place a higher value on time
• ?
• evidence points to persistence of price
  dispersions across Internet markets

7
Will geographical mkts be widened?

• Forces mitigating against there being a truly
  global market in many products
• Language barriers
• taxation quandaries
• regulatory barriers (differences in national laws
  concerning things like discounts, comparative
  advertising, resale price maintenance and
  exclusive territories)
• physical delivery problems
• absence of secure payment systems
• difficulties identifying actors and enforcing
  contractual rights

8
Assessing market power

• Lower entry barriers
• lower search and selection costs on the buyer
  side
• lower transaction costs
• reduced need for physical assets
• rapid mkt growth

• Higher entry barriers
• sunk costs of establishing customer loyalty
  (so-called neural real estate)
• network effects --gt markets are tippy,
  especially when liquidity and proprietary SCMSs
  are important

9
Reducing first-mover advantages

• Sunk costs
• customers ability to port their own database
  entries
• effective consumer protection legislation

• Tippy markets
• ability of mkt participants to monitor different
  marketplaces and to switch between them (see AOL
  5.0 interoperability example)

10
Business-to-Business trading systems

• Will sensitive information be exchanged between
  competitors?
• Can these systems be used to exclude individual
  companies from the most efficient virtual market
  place?
• Can the concentration of buyer power be a cause
  for concern?

11
E-commerce and consumer policy

• consumers minimum rights
• previous information
• obtain necessary documentation
• resolve a contract

12
Guidelines for Consumer Protection in the Context
of E-commerce

• approved on 9 December 1999 after 18 months of
  discussion by the OECD CCP
• help ensure that consumers are no less protected
  when shopping online than they are when they buy
  from store or order from a catalogue
• reflect existing legal protection available to
  consumers in more traditional forms of commerce
• encourage private sector initiatives that include
  participation by consumer representatives
• emphasise the need for co-operation among
  governments, businesses and consumers

13
A quote from John Vickers

• The growth of e-commerce can be hugely beneficial
  to consumers, businesses and the economy. It
  gives consumers the ability to shop around far
  more easily than in the past and so encourages
  price competition and innovation among suppliers.
  Part of our job is to help make it a more secure
  channel by ensuring suppliers fulfil their
  obligations. Implementation of the
  distance-selling regulations and our role in the
  creation of the TrustUK approvals body for
  e-commerce codes are just two ways we are doing
  this.

14
Unfortunately ...

• only 44 percent of e-businesses complied with the
  basic requirements of the Data Protection Act of
  1998
• Web sites inform visitors how information that
  visitors provide will be used
• Web sites keep data secure and refrain from
  sharing it with third parties without permission
• 52 percent of the 637 businesses visited by OFT
  failed to comply with the UK's Distance Selling
  Regulations
• businesses must provide full disclosure of
  refund, exchange and order cancellation policies

15
Competition policy and e-commerce in non-OECD
countries

• State ownership
• multi-industry conglomerates
• large MNCs vs little SMEs
• small markets
• income and endowments inequality
• institutional weakness
• information asymmetries

16
Trade and Competition Policy

• need for
• enhanced competition in telecoms to facilitate
  lower priced access to the Internet
• greater competition in international parcel
  delivery services
• streamlined customs procedures

17
Sources

• Goldstein OConnor, E-commerce for development,
  OECD Devt Ctr, Oct 2000
• OECD, Competition Issues in Electronic Commerce,
  DAFFE/CLP(2000)32
• Office of Fair Trading, E-commerce and its
  implications for competition policy, Aug 2000